Online Tax Prep Not a Function of E-Gov't Lenard Files Comments With IRS in Support of Private Consortium

WASHINGTON, D.C. - Having taken a strong stand against government intrusion into the burgeoning online tax preparation business in a study published earlier this year, Thomas M. Lenard of The Progress & Freedom Foundation has filed comments with the IRS concerning the agency’s recently announced partnership with private sector entities for the provision of free online tax preparation services. “The decision of the IRS not to offer tax preparation services in competition with the private sector – which is an integral part of the proposal – is a good one,” he writes.

While Lenard supports the online provision of tax forms and other information, as well as government initiatives to increase electronic filing, he writes in today’s letter to the IRS that “there is a conflict of interest between government acting as both a preparer of tax returns and an enforcer of tax laws.” This conflict “compromises the privacy of information” and pits government’s interest in collecting tax revenue against taxpayers’ interests in learning how to minimize their tax liability. Moreover, Lenard cites “difficult security issues, which the government is less well-suited than the private sector to address.”

“As a general rule, government should refrain from competing when the private sector is already supplying a service,” Lenard writes. “A wide array of tax-preparation services – online and off – is already being provided by a vibrant, competitive and innovative private sector. Government competition would weaken the private tax-preparation sector and, in particular, its incentives to innovate and offer new services. Over time, the quality of service offerings to consumers and businesses would be diminished.”

Lenard and Progress & Freedom Foundation Adjunct Fellow James W. Harper published their study, “Online Tax Preparation: Beyond the Bounds of E-Government,” in April. Today’s letter is in response to a notice for comment published in the Federal Register by the IRS on August 8.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.